Friday, May 25, 2012

Facebook stock is a victim of "Short Selling". What the heck is Short Selling? I give a VERY brief example here using FB stock. This is a strange concept...

Another reason people hate Wall Street is this business of "Short Selling" a stock.  Never have done this and only know about it from what I read.  Here is my barely literate take on how it works... 

You buy 1,000 shares of Facebook stock at the opening price of $38 per share. Your investment in FB stock is $38,000.  However, you don't really possess these shares, your brokerage firm actually "holds" them for you.  

I am a BIG customer of the brokerage firm you used as well.  I believe FB stock is overpriced and the price is going to go down.  I am going to enter an agreement with "our" brokerage firm to borrow your shares of stock (for a fee). Here is what I am going to do:

1.  Borrow your 1,000 shares AND immediately sell those shares (assume the price is still $38 per share).  $38,000 is put INTO my account at the brokerage firm. Your account stays the same and YOU have NO idea of what just transpired between me and our brokerage firm.

2.  As I predicted, the market price for FB stock decreased. Perhaps helped by my borrowing and selling YOUR stock! Assume it drops to $35 per share. 

3. Now you see this on the news, freak out, and want to sell your stock.  This is the fun part.  I am now required, per my agreement with the brokerage firm, to buy those 1,000 shares back at a price of $35 so those shares can be returned to you to sell at $35.  So I have to dip into my account and spend $35,000 to buy the stock.  Remember, as a result of the initial transaction I had $38,000 in the account.  After the subtraction of $35,000 I have $3,000 left in my account.  You originally invested $38,000 and now you have $35,000 as a result of selling at the lower price---$3,000 LESS!!

4. This is the best scenario for me but I do take a risk.  If instead the price of the stock increased, to say $41 per share and you wanted to sell to take your profits, then the situation described above would be reversed---I would have to put  $3,000 into my account to cover the purchase of the stock and you would make $3,000 on your sale of the stock. 

4. The question in your mind has to be: Is this legal? Yes, it is.

Short sellers are betting that price of the stock will go down.  The benefit of allowing short selling is that it tends to keep the price from getting artificially high---or form a "bubble". It serves as a counter-weight to "irrational exuberance" investors might have toward a specific stock.

Bottom line for me:  I see the purpose and value (I think, I do anyway) of short selling, but bothers me that my stock can be traded like this without my explicit knowledge.

If you half-way understood the above, then you are more equipped to read and understand THIS article on the Short-Selling of FB stock in the first couple of trading days.  Pretty interesting read

Thursday, May 24, 2012

Explore the "Better Life Index" and see how US Men and Women compare to other major developed countries. How does the US rate??

A very nice interactive made available by the Organisation for Economic Co-operation and Development(OECD), a European agency that has an excellent reputation for producing economic and social data.

It is called the "Better Life Index".  It is an altenative way to mearsure national well-being.  You can select the key variable(s) you want to compare across borders with other countries and at the same time the differences between men and women within that country.  Below is one where I isolated Income and Education.  The US is on the far right.  The RED bubble is for Woment and the BLACK one for men.  I encourage you to check it out and fiddle with the variables. Is the US THAT bad a place?

Source: OECD

Tuesday, May 22, 2012

Donald Trump bashes China, again. If he wants to kill the beast perhaps he should stop feeding it. See photo evidence here...

Donald Trumps own words:
"China is succeeding. They are rebuilding their country off our money. I mean, they're -- we are making so many products in China, paying China so much money for those products, that you go to these Chinese cities, they are rebuilding cities and they're building new cities that are bigger than any of our cities....
...You have such a huge deficit with -- trade deficit with China. Their currency is artificially low. And, see, we have fallen into the Chinese trap. We are now destroying the dollar in order to try and compete with them. We shouldn't be doing that. We should be keeping the dollar strong and stable and we should tax Chinese products.
And the people that talk about free trade, we don't have free -- I am a big free trade believer, by the way -- but we don't have free trade with China.
China is, literally, going to destroy this company -- this country. If we don't get smart quickly, China will destroy our country...."
Pictures of Trump Products:  If you want to starve the beast you have to stop feeding it...

New Electoral College Map correlated with Swing States expected return to pre-recession levels of employment---this one IS important...

I put a yellow star on the State that according to Real Clear Politics is considered a "swing State" by Real Clear Politics.  The colors are coded by when it is expected the State will return to Pre-Recession employment levels in that State.  Of particular interest are the States with a star AND are either green, yellow or red.  All those (except Colorado and Virgina) are passed the Presidential election this November. Pundits suggest people will vote on the economic issues when the election nears and all the other issues will dissipate.  If this is the case, then the President has more of a challenge at this point.

Remember, ignore national popular polls between Romney and Obama. What counts is the Electoral College map.  
Source of Map Carpe Diem. Source for Swing States Real Clear Politics

Nice Infographic regarding the "Youth Vote" and how it tends to play out in National Elections.

Lots of data regarding the "Youth Vote" and how they, as a group, tend to sway.  Interesting stuff.
Youth Vote Showdown
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